Shnell & Frey (No 3)

[2020] FamCA 926

FAMILY COURT OF AUSTRALIA

SHNELL & FREY (NO. 3) [2020] FamCA 926

FAMILY LAW – COSTS – Where a final property order has been made – Where the husband seeks to recover from the wife his costs incurred in the proceedings in the fixed sum of $154,061.04 – Where the wife opposes the costs application – Where the circumstances justify a costs order but there is no exceptional circumstance that would warrant an order for costs on an indemnity basis – Where the wife shall pay the husband’s costs of the proceedings fixed in the sum of $80,000 and the husband’s costs of the costs application fixed in the sum of $1,500, both payable within 30 days of the finalisation of her appeal.

Family Law Act 1975 (Cth) s 117
Family Law Rules 2004 (Cth) Pt 19.4, Pt 19.5

Calderbank v Calderbank [1975] 3 WLR 586
Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225
Collins & Collins (1985) FLC 91-603
Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania)) v Fish and Anor (2005) 33 Fam LR 123
Idoport Pty Ltd v National Australia Bank Limited & Ors, Idoport Pty Ltd v Donald Robert Argus [2007] NSWSC 23
Kohan and Kohan (1993) FLC 92-340
Parke & the Estate of the Late A Parke (2016) FLC 93-748
Penfold v Penfold (1980) 144 CLR
Prantage v Prantage (2013) 49 Fam LR 197
Re Wilcox, Ex parte Venture Industries Pty Ltd (1996) 72 FCR 151

APPLICANT: Ms Shnell

RESPONDENT: Mr Frey

FILE NUMBER: SYC 1057 of 2017

DATE DELIVERED: 4 November 2020

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Carew J

HEARING DATE: In chambers by way of written submissions

REPRESENTATION

SOLICITOR FOR THE APPLICANT: Tilley Family Law and Mediation

SOLICITOR FOR THE RESPONDENT: Etheringtons Solicitors

It is ordered that:

1. The wife pay the husband’s costs of and incidental to the proceedings fixed in the sum of $80,000 with payment to be made within 30 days of the finalisation of the wife’s appeal number EAA …/2020.

2. The wife pay the husband’s costs of and incidental to the application for costs filed 31 August 2020 fixed in the sum of $1,500 with payment to be made within 30 days of the finalisation of the wife’s appeal number EAA …/2020. 

Note: The form of the order is subject to the entry of the order in the Court’s records.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Shnell & Frey has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: SYC 1057 of 2017

Ms Shnell

Applicant

And

Mr Frey

Respondent

REASONS FOR JUDGMENT

1. On 24 July 2020, I concluded a property trial between Ms Shnell (“the wife”) and Mr Frey (“the husband”) and delivered judgment on 4 August 2020. An order was made that each party retain all property currently in their respective possession or control, which represented a split of the total property ‘pool’ (which included, among other things, inheritances received by both parties) in the proportion 52/48 in the wife’s favour. The effect of the order resulted in the wife retaining assets valued at $4,473,913 and the husband retaining assets valued at $4,149,383.

2. The husband now seeks an order that the wife pay his costs of the property proceedings in the fixed sum of $154,061.04 or, alternatively, that costs be assessed on an indemnity or party/party basis. He also seeks an order that the wife pay the costs of the application for costs filed 31 August 2020 fixed in the sum of $2,000.

3. The wife opposes any order for costs.  

4. With the consent of the parties, the application has proceeded in chambers after the receipt of written submissions (save for a mention of the matter to determine whether the husband should be permitted to rely upon a further affidavit). For the reasons set out below, I propose to make an order that the wife pay the husband’s costs of the proceedings fixed in the sum of $80,000 and a further sum of $1,500 for the costs application. As the wife’s appeal against the substantive order is pending I propose to delay the requirement to pay any sum until after the finalisation of the appeal.

background

1. The wife commenced proceedings for property settlement in the Federal Circuit Court on 30 June 2017 and the proceedings were transferred to this Court (Sydney Registry) on 5 December 2017.

2. A detailed background of the dispute between the parties is contained in my Reasons for Judgment delivered on 4 August 2020 at [4] – [24], and the issues for trial are identified at [25] of those reasons. In short, the wife and husband were married for 35 years and have two adult children. The husband was the main breadwinner and the wife was the main homemaker. Both parties are professionals. Late in the marriage, the husband received a substantial inheritance. After separation, the wife received a substantial inheritance. At trial, the wife sought to, in effect, quarantine her inheritance.

3. Relevant to the costs application, the husband entered into a costs agreement with his solicitor on 3 February 2017 which, among other things, quoted total fees of $6,000 to $12,000 to negotiate, formalise and implement a property settlement without proceeding to court. The costs agreement also contains the husband’s agreement to pay professional fees for legal services calculated in accordance with an attached schedule (including an hourly charge out rate for the solicitor of $500 and increases notified from time to time), disbursements, and counsel’s fees.

4. On 1 May 2018, the parties retained the Honourable Ian Coleman SC to facilitate a mediation. The matter did not resolve.

5. On 8 May 2018, the husband made an open settlement offer to the wife in the following terms:

   (1)The husband retain all property presently in his possession or control and be responsible for payment of any debts that he may have.

   (2)The wife retain all property presently in her possession or control and be responsible for payment of any debts that she may have.

6. The offer was open for acceptance for 21 days.

7. On 10 August 2018, the husband  made a without prejudice offer of settlement in the following terms:

   (1)Each of the parties retain all property and superannuation entitlements currently in their respective possession or control and there be no Order for alternation of property interest pursuant to s 79 of the Act.

   (2)Each party pay their own costs of and incidental to the proceedings.

8. The offer was open for acceptance up until the conclusion of the conciliation conference, which took place on 23 August 2018.

9. The matter did not resolve at the conciliation conference.

10. On 20 March 2019, the matter was referred to the listing coordinator for the allocation of trial dates.

11. The wife’s mother died in 2019 and the wife was the sole beneficiary of her residual estate which, at the time of trial, had a value of $2,550,026. The wife was an only child.

12. On 11 February 2020, trial dates were allocated for two days commencing 23 July 2020.

13. On 25 February 2020, the husband entered into a costs agreement with his barrister (a senior counsel) in which he agreed to pay a daily rate of $8,000 and, at that time, the estimated costs up to and including a two day hearing were $32,000 plus GST.

14. Despite the parties having undertaken a private mediation and conciliation conference, on 5 March 2020 they were ordered to attend a further conciliation conference on 28 May 2020. The matter did not resolve.

15. On 29 May 2020, a further offer of settlement was made by the husband in the following terms:

    (1)[The husband] pays to [the wife] the sum of $50,000 and also transfers to her the Artwork ($10,000), the Motor Vehicle 2 ($14,000) and the Motor Vehicle 4 ($5,000), which are on the balance sheet;

    (2)Subject to the above payment and transfer of property, each of the parties retain all property and superannuation entitlements currently in their respective possession or control and all liabilities; and

    (3)Each party pays their own costs of the proceedings.

16. The offer remained open for acceptance for 14 days and, if not accepted, the husband reserved his right to tender a copy of the offer pursuant to the principles in Calderbank v Calderbank [1975] 3 WLR 586 and s 117(2) of the Family Law Act 1975 (Cth) (“the Act”).

17. Interim invoices were rendered to the husband at various stages commencing on 9 August 2017, and the total fees and disbursements incurred by the husband to his solicitor are $95,788.54. The total fees incurred by the husband to his senior counsel are $51,425 and other disbursements are $6,847.50.

18. The trial proceeded during the COVID-19 pandemic at a face to face hearing at the Parramatta Registry.   

how costs applications are determined

1. Although each party generally bears their own costs in this jurisdiction (s 117(1) of the Act), the Court has a broad discretion[1] to make such order as to costs as the Court considers just where there are circumstances that justify it in doing so (s 117(2)).

   [1]Collins & Collins (1985) FLC 91-603 at 79,877.

2. An applicant for costs bears no “additional or special onus” other than the establishment of “justifying circumstances”.[2]

   [2]Penfold v Penfold (1980) 144 CLR 311 at 315.

3. In the exercise of the discretion to award costs, regard must be had to the factors set out in s 117(2A) of the Act, so far as they are relevant.

4. Those factors are as follows:

   a)the financial circumstances of each of the parties to the proceedings;

   b)whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;

   c)the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;

   d)whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the Court;

   e)whether any party to the proceedings has been wholly unsuccessful in the proceedings;

   f)whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and

   g)such other matters as the Court considers relevant.

5. It is sufficient for one factor in s 117(2A) to be present.[3]

   [3] Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania)) v Fish and Anor (2005) 33 Fam LR 123.

6. A court will not lightly make an order for costs to be paid on an indemnity basis. There needs to be some circumstance of an exceptional kind to justify that course.[4]

   [4] Kohan and Kohan (1993) FLC 92-340 at 79,614; Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 233 (“Colgate-Palmolive”). 

7. Rule 19.08(3) of the Family Law Rules 2004 (Cth) (“the Rules”) requires the terms of any costs agreement to be disclosed when indemnity costs are sought.

8. The tensions created by the differing objectives sought to be addressed by a costs order awarded on a standard basis as opposed to an indemnity basis were discussed in Re Wilcox, Ex parte Venture Industries Pty Ltd[5] where the Full Court of the Federal Court (Cooper & Merkel JJ) said:

   The issue whether costs should be ordered on a party and party basis or on an indemnity basis has acquired increasingly greater significance as the gap between the two bases appears to have grown.

   The gap has highlighted the conflict between two seemingly irreconcilable objectives. The first is protecting access to justice by only exposing an unsuccessful litigant in the usual course to an order for scale costs on a party and party basis. The second is relieving a successful litigant from the burden of costs which that litigant should not have been required to incur. These and other policy factors have been considered by the courts over a very long period in order to arrive at the principles which govern the undoubted discretion of courts to depart from ordering costs on a party and party basis and ordering costs on an indemnity basis. The principles were stated by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225.

   [5] (1996) 72 FCR 151 at 156 – 157.

9. The Full Court (Cooper and Merkel JJ) went on to restate the principles from Colgate-Palmolive in the following terms: [6]

   (a)the Court ought not to depart from the rule that costs be ordered on a party and party basis unless the circumstances of the case warrant the Court in departing from the usual course;

   (b)the circumstances which may warrant departure from the usual course arise as and when the justice of the case so requires or where there may be some special or unusual feature in the case to justify the Court in departing from the usual course;

   (c)whilst the circumstances in cases in which indemnity costs have been ordered offer a guide, the question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for costs other than on a party and party basis.

   [6] Ibid at 156 – 157.

10. While there is no exhaustive list of what circumstances may warrant an order for costs to be paid on an indemnity basis, some particular circumstances that have been found to justify such an order were identified by Sheppard J in Colgate-Palmolive[7] as follows:

    a)Making allegations of fraud knowing them to be false;

    b)Making irrelevant allegations of fraud;

    c)Evidence of particular misconduct that causes loss of time to the Court and to the other parties;

    d)Commencing or continuing proceedings for some ulterior motive or in wilful disregard of known facts or clearly established law;

    e)Making allegations which ought never to have been made or the undue prolongation of a case by groundless contentions;

    f)An imprudent refusal of an offer to compromise.

    [7]Colgate-Palmolive (above n 4) at 233.

11. The explanatory guide to the Rules provides a useful definition of costs on an “indemnity basis”, namely: ^[8]

    [A]n entitlement to costs, including costs under a costs agreement, for all costs incurred, other than costs that are unreasonable in amount or that have been incurred unreasonably.

    [8]Prantage v Prantage (2013) 49 Fam LR 197 at 200.

12. The Rules provide specific powers to the Court when considering what costs order to make and set out particular matters that may be considered. Rule 19.18(1) empowers the Court, when awarding costs, to make an order:

    a)of a specific amount;

    b)as assessed on a particular basis (e.g. lawyer and client, party/party or indemnity);

    c)to be calculated in accordance with the method stated in the order; or

    d)for part of the case, or part of an amount assessed in accordance with Schedule 3.

13. In considering what specific order should be made, r 19.18(3) provides that the Court may consider any of the following factors:

    a)the importance, complexity or difficulty of the issues;

    b)the reasonableness of each party’s behaviour in the case;

    c)the rates ordinarily payable to lawyers in comparable cases;

    d)whether a lawyer’s conduct has been improper or unreasonable;

    e)the time properly spent on the case, or in complying with pre-action procedures; and

    f)expenses properly paid or payable.

The husband’s submissions

1. The husband submits that a costs order against the wife is justified for the following reasons:

   a)The wife has the financial capacity to meet a costs order;

   b)The wife’s conduct in denying a number of facts in the Notice to Admit concerning the control and operation of N Pty Ltd, H Pty Ltd, and the H Trust required the husband to obtain evidence from his siblings and caused the hearing to take longer than it should have taken;

   c)The wife’s conduct in making allegations that should never have been made. In particular, the wife contended the following:

   i)H Pty Ltd was a sham corporation and the husband’s puppet;

   ii)The H Trust and H Pty Ltd were the husband’s alter ego; and

   iii)N Pty Ltd was a sham corporation and the husband’s siblings were the husband’s puppets.  

   d)The wife was wholly unsuccessful, in that, as a result of the final property order, she is in no better position than if she had not commenced the proceedings; and

   e)The wife imprudently rejected the husband’s various offers of settlement.

2. The husband has incurred $154,061.04 in legal fees and this sum, it is submitted, should be the subject of the award, having regard to the following matters:

   a)There was a level of complexity in the proceedings relating to the following matters:

   i)The alleged control of H Pty Ltd, N Pty Ltd and the H Trust;

   ii)The nature and operation of the H Trust;

   iii)The value to be attributed to properties owned by H Pty Ltd;

   iv)The potential payment of CGT;

   v)The wife’s capacity to work; and

   vi)The status of the inheritances received by both parties.

   b)The allegations concerning the control of H Pty Ltd, N Pty Ltd and the H Trust and the nature and operation of the H Trust should never have been made;

   c)The solicitor’s fees have been “economically incurred”;

   d)It was reasonable to engage senior counsel given the complexity of the issues;

   e)The failure of the wife to obtain any order in her favour becomes an exceptional circumstance because of her continued refusal to accept offers of settlement; and

   f)By way of comparison, the total solicitor’s fees calculated in accordance with the schedule in the Rules is $52,679.81; counsel’s fees $34,551.24 and disbursements $6,847.50 (total $94,078.55).

3. The husband also submits that he should be awarded the costs associated with his costs application. The costs calculated on scale are said to be $2,000 including the costs of preparing the application and supporting affidavit, the filing fee of $125, the preparation of submissions, reviewing the wife’s affidavit and submissions, and the preparation of the husband’s submissions in reply. Costs actually payable by the husband pursuant to his costs agreement are estimated to be $3,000.

The wife’s submissions

1. The wife opposes the application for costs and submits that there should be no departure from the general rule that each party bear their own costs for the following reasons:

   a)There are no “clear circumstances” which justify such a departure;

   b)Both parties are in relatively strong financial positions;

   c)The husband’s affidavit material contained irrelevant and unnecessary material which was objectionable and required the expenditure of unnecessary costs;

   d)The husband had previously sought an order for 75% of the parties’ assets in his Response filed 18 August 2017 and this was “disentitling conduct” on the husband’s behalf;

   e)That the husband maintained, up until trial, that his interest in the Trust was not a financial resource, and this issue was capable of resolution prior to the commencement of the trial, although it remains that there is no valuation by the husband of the “equitable choses in action”;

   f)The wife has not been wholly unsuccessful as she was awarded 52% of the assets at trial;

   g)The offers of settlement made by the husband cannot be relied upon by him to support a costs order in his favour; and

   h)If costs are awarded, they should not be on an indemnity basis because the circumstances of this case do not fall within any of the categories justifying such an award as identified in Colgate-Palmolive.[9]

   [9] Ibid.

1. In relation to the offers of settlement, the wife submits:

   a)The offer dated 8 May 2018 would have resulted in a division of 73% to the husband and 27% to the wife of the parties’ net assets at that time, (which did not include the wife’s inheritance). The wife asserts that had she accepted this offer she would have been in a less favourable position than she is now following the final order;

   b)The offer dated 10 August 2018 would have resulted in a division of the parties’ net assets at that time (which did not include the wife’s inheritance) in the proportion 68% to the husband and 32% to the wife. The wife asserts that the second offer was also less favourable to her than the final order; and

   c)The offer dated 29 May 2020 was not “objectively capable of being clearly understood” and was conditional on a “set of terms” and not capable of acceptance.

Conclusion

1. This is a case where a costs order is warranted for the following reasons:

   a)The wife has the financial capacity to meet a costs order;

   b)The wife denied a number of facts contained in the husband’s Notice to Admit which put the husband to the expense of proving those matters;

   c)The wife maintained a position in relation to the control and operation of the N Pty Ltd, H Pty Ltd, and the H Trust despite her counsel candidly conceding that “the wife’s case was rather weak on this point” [Reasons for Judgment dated 4 August 2020 at [43]]; and

   d)The wife rejected three offers of settlement which, had they been accepted, would have resulted in the wife being in substantially the same position as ultimately provided for in the order made on 4 August 2020.

2. The fact that the husband sought in his Response to the wife’s Initiating Application a percentage division substantially in excess of the eventual outcome (although on a pool of assets that did not include the wife’s inheritance) is not a disentitling fact to an award of costs in circumstances where each of the offers made by him reflected the ultimate result, i.e. each party retained the assets in their possession, and his third offer, made after the receipt by the wife of her inheritance, was more favourable to the wife than the eventual outcome in that it required him to pay the wife an additional $50,000 and transfer to her a painting and two motor vehicles (collectively said to be worth $29,000).

3. The wife argues that because the husband’s first two offers represented a greater percentage division to him than the percentage division at trial, the offers “cannot be relied on in relation to costs”. I reject that contention. When considering offers of settlement, a significant factor is to consider whether the wife would ultimately have been better off overall if she had accepted the offer. In my view, the answer in relation to each offer must be a resounding ‘yes’. The effect of the offers would have resulted in the wife retaining all the assets in her name and her inheritance (although her inheritance had not been received at the time of the first two offers). Ultimately, that was the result at trial. If she had accepted the third offer she not only would have retained all assets in her name (which by then included her inheritance), but received an additional $50,000 in cash and other assets worth $29,000.

4. I reject the wife’s submission that the third offer was not capable of acceptance. Whether or not the two motor vehicles were exclusively driven by the adult children was irrelevant. The undisputed facts were that both vehicles were registered in the husband’s name. Ultimately, at trial both parties accepted that the motor vehicles should be retained by the children, something the wife could have given effect to if she had accepted the transfer of them to her as proposed in the husband’s third offer. 

5. The whole point of making offers of settlement is to encourage resolution. Rejection of an offer comes with risk, namely, the imposition of a costs order.

6. Despite being satisfied that this is a case that justifies a costs order, I do not propose to award costs on an indemnity basis. In my view, there is no exceptional circumstance that would warrant an order for costs on an indemnity basis. While an “imprudent refusal” to accept an offer can support an award for costs on an indemnity basis, it does not follow that every such case warrants such an order. At the time of the first two offers, the wife’s mother had not passed away, an event that did not occur until 2019, but her inheritance was certainly received before the third offer. The wife also sought to investigate the nature of the husband’s interest in a number of entities including a family trust. By the time of trial the wife had no evidence sufficient to support her contentions relating to the control and operation of those entities.

7. I am persuaded that an order for a specific sum is preferable to an order requiring an assessment because the latter will inevitably involve the parties in yet further conflict, delay, and cost. Murphy J in a separate judgment in the Full Court’s decision in Parke & the Estate of the Late A Parke[10] provides a helpful example of the process involved in awarding a specific sum and his Honour draws assistance from the observations made by Einstein J in Idoport Pty Ltd v National Australia Bank Limited & Ors, Idoport Pty Ltd v Donald Robert Argus[11] when considering an analogous provision to that contained in r 19.18(1)(a) of the Rules. Murphy J said in particular:

   130.If the court is to fix a sum it should be “fixed broadly having regard to the information before the Court” (Beach Petroleum NL v Johnson (No 2) [1995] FCA 1250; (1995) 57 FCR 119, at [24]cited in Idaport at [9]). The process does not “by its very nature ... envisage that a process similar to that involved in a traditional taxation or assessment of costs should take place”. (Idaport at [9](v), citing Harrison v Schipp[2002] NSWCA 213; (2002) 54 NSWLR 738).

   131.Obviously enough, the court must act judicially in fixing or specifying a sum of costs, but:

   ...the requirement that the power to award a gross sum should be exercised judicially does not mean that it must be exercised in any scientific or formulaic manner. At the heart of the judicial function is the responsibility to weigh up competing factors and considerations, many of which might conflict, to reach a determination. Acting judicially carries with it an obligation to apply the rules of natural justice, to act impartially and to apply the law to the facts. ...

   (Idaport, at [10] per Einstein J.)

   [10] (2016) FLC 93-748 at 81,943–81,944, [122]–[134].

   [11] [2007] NSWSC 23 at [9].

8. Turning to consider the particular matters set out in r 19.18(3) of the Rules, I accept the husband’s submission that there was a certain degree of complexity in the issues agitated at trial as apparent from the Reasons for Judgment delivered on 4 August 2020. I also take into account the wife’s behaviour in pressing her position relating to the control and operation of various entities and denying certain facts in the husband’s Notice to Admit. Although there is no evidence of rates ordinarily payable to lawyers in comparable cases, I am well familiar with costs incurred in matters in this Court particularly because at the commencement of each trial the costs payable by each party are disclosed. The only particular observation I wish to make about the quantum relates to the costs incurred for the Notice to Admit – counsel’s fees specific to that document were $7,100 which does appear to be somewhat on the high side. I also note that the husband has helpfully provided a comparison of the costs incurred by him with the costs calculated on scale. The out of pocket expenses paid appear entirely appropriate.

9. In relation to the quantum of costs sought by the husband, the wife takes no serious issue although she submits that as a large portion of the husband’s trial affidavit was ultimately struck out by consent at trial “a substantial part of the costs which were expended in drafting [the husband’s] affidavit should be disallowed”. The husband responds that approximately 40 minutes of Court time was required to deal with objections and many of the wife’s objections to the husband’s affidavit were dismissed. In any event, I note that the legal costs incurred for the preparation of the husband’s trial affidavit total only $385.74 because the husband, being a professional, prepared his own affidavit. In her affidavit, the wife also suggests that costs incurred by the husband prior to the commencement of proceedings should be disallowed. The costs incurred prior to the commencement of proceedings were $10,890.

10. I have come to the conclusion that a just sum for costs payable by the wife to the husband is $80,000. The payment of those costs should be paid within 30 days of the finalisation of the wife’s appeal against the substantive decision.

11. It is also appropriate for the wife to contribute towards the husband’s costs of his application for costs. As already noted she has the financial capacity to pay a costs order and the wife has been wholly unsuccessful in her opposition to a costs order. No separate submissions were made by the wife in relation thereto. In my view, a just sum is $1,500 and it too will be payable within 30 days of the finalisation of the wife’s appeal.  

I certify that the preceding fifty-one (51) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Carew delivered on 4 November 2020.

Associate: 

Date:  4.11.2020